Federal Reserve’s Kocherlakota: Fed May Need to Do More

NEW YORK–Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said Thursday evening weak inflation and “too high” levels of unemployment argue in favor of the central bank doing more to help the economy.

But at the same time, the incoming voting member of the monetary-policy setting Federal Open Market Committee also expressed qualified support for pulling back on the Fed’s bond-buying program. Mr. Kocherlakota is one of the Fed’s most consistent supporters of aggressive action to aid the economy, and he has stood apart from many of his colleagues and called for additional forms of action to boost employment at a time where the Fed has taken concrete steps toward lowering its level of support for the economy.

The Fed “could do better with respect to both of its congressionally mandated objectives by adopting a more accommodative monetary policy stance,” Mr. Kocherlakota said at a public forum held at his bank Thursday evening.

He spoke in the wake of the Fed’s decision last month to cut the pace of its bond-buying stimulus program to $75 billion a month, from $85 billion. Most expect the cuts to continue through the course of the year. On Tuesday, San Francisco Fed leader John Williams said it is likely an improving economy will allow the central bank to steadily reduce the pace of buying at the year progresses. Market participants see the program ending later this year.

In his remarks, Mr. Kocherlakota appeared to agree with the move to cut bond buying. “As long as the economy evolves according to our outlook…we will continue a pattern of reducing” the pace of bond buying, he said.

The official didn’t say what he would prefer to do to boost stimulus, but in the past, Mr. Kocherlakota has said he would favor lowering the jobless-rate goal the Fed has said would govern the potential timing of future interest rate hikes.

The official said the Fed is still providing the economy with lots of support, and that the weakness of inflation by itself argues for a significant aid effort on the part of the central bank. “We are failing to deliver” on efforts to keep inflation at 2%, Mr. Kocherlakota said.

“We really do have to be careful” about any move to back off on providing aid to the economy, and “we could actually think about doing more,” Mr. Kocherlakota said.

The official also said the decline in the unemployment rate has happened “disturbingly slowly.”

Mr. Kocherlakota noted in his remarks that open communications are very important for the conduct of monetary policy.

“In order for the Fed to continue to be effective, it needs to communicate its policy decisions transparently to the public.” He added the Fed “also needs the public’s input on how those policies are affecting them.”

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